Intel's Desperate Plan To Save Itself

In October, I wrote about the seven
reasons Intel could be the next RIM, the beleaguered maker
of the Blackberry smartphone. Judging by the amount of traffic
that post got from behind Intel’s own walled corporate
intranet, it was a post many at Intel itself took seriously.

But little has changed in the past three months, and the
company’s just-released fourth quarter earnings report reveals
exactly the same weaknesses I outlined then.

The key number from Intel’s
fourth quarter report: Revenue, at $2.5
billion, is down 27% from fourth quarter a year ago, when it
was $3.4 billion.

The bright spot in Intel’s quarterly report was revenue
for its Data Center Group, up 7% to $2.8 billion from a year
ago. This group creates the fast chips that power
the servers that run “the cloud”—or in other words, the
internet. It makes sense that this group should be doing well,
since one of the the secrets of the ascent of mobile devices is
that they can get by with slower processors and less memory
because they offload a lot of their data crunching to the
cloud.

Now that PCs have been redefined by consumers as “those things
on which I answer email and check Facebook,”
and are therefore a category that includes tablets
and possibly
even phones, Intel has a dilemma. The chips that power
mobile devices are significantly less expensive than the
microprocessors that go into notebook and desktop PCs, and
makers of these chips therefore make much lower margins. If
Intel tries to gain market share in this transformed landscape,
it probably can’t claw its way back to its old revenue numbers
without selling even more chips than it ever has before.

That said, there is a product in Intel’s pipeline that
could end the company’s contraction, if mobile device
manufacturers adopt it: A line of low-power chips for
phones and tablets called Clover Trail. Early tests of Clover
Trail chips indicate that they are as
good or better than the processors that dominate this
market, which are made by a variety of manufacturers (the
biggest being Qualcomm)
and are based on specifications created by chip design firm
ARM.

There are many unknowns in Intel’s battle with ARM, including
whether manufacturers will adopt Intel’s chips, the rate at
which mobile software coded to run on ARM chips will be
modified to run on Intel’s, and whether, ultimately, Intel’s
innovation-centric, capital-intensive business model can
compete with a small army of smaller but more nimble
competitors.